Recap of Saturday, October 6

Stock Smarts

Since the terrorist attacks on September 11, the stock market has gained back some of its initial losses from the week the market reopened. But there is still much uncertainty out there. What can we expect now that a war against the Taliban and terrorism is in full motion?

Historically, markets have rallied during times of war. Look at the returns on the Dow from the wars in the 20th century:

World War I   down 8.5%
World War II   up 54.6%
Korean War   up 26.5%
Vietnam War   up 6.9%
Gulf War   up 15.2%

So how will investors and the markets respond to the war on terrorism?

Dagen McDowell from SmartMoney feels that market performance depends on what kind of war we wage and the success of that war. If the United States military is able to surgically take out the terrorist networks with a measured response, then the markets could soar. On the other hand, if the battle ends up causing a serious upheaval in the Middle East, the markets could suffer losses for a long time to come.

Kim Fennebresque of SG Cowen thinks that the markets are most concerned right now with consumer confidence. And as long as confidence continues to erode, the markets will drop. He also says that during times of war, when we as a country are successful, the consumer will go out and spend money, helping to boost the economy.

Hilary Kramer of the Cisneros Group says that this is unlike other wars from the past in that it is being partially fought within our own borders. And for the markets to respond with a rally, we need to have a clear victory, which might be difficult to achieve.

Jonas Max Ferris of notes that today’s markets are more expensive than markets during the other recent wars, which means stocks could be set up for a big fall. But he thinks that the market is going to essentially be flat for a while.

Jonathan Hoenig from Capitalist Pig Asset Management says that while the war on terrorism is the all-consuming story right now, the markets were in bad shape before the attacks. So what we are seeing now is just more of the same weakness, especially from the large-cap stocks. He looks at gold as being a good alternative investment to stocks. 
A few members of the panel offered up some wartime picks:

Jonathan: Manufactured Home Communities (MHC)

Hilary: General Mills (GIS)

Jonas: Becton Dickinson (BDX)

Mutual Fund Face-Off

Topic: The best “low risk” stock fund

Panel: Dagen McDowell and Jonas Max Ferris


Dagen - Clipper Fund (CFIMX)

Jonas - Royce Total Return Fund (RYTRX)

Money Mail

Dagen and Jonathan wrapped up the show by answering some email question from viewers.

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